On January 25, 2021, President Joe Biden signed an Executive Order on “Ensuring the Future is Made in All of America by All of America’s Workers,” laying his administration’s foundation for further strengthening Buy American laws and encouraging domestic procurement. Using the broad phrase “Made in America Laws,” the EO aims to strengthen “all statutes, regulations, rules, and Executive Orders relating to Federal financial assistance awards or Federal procurement, including those that refer to ‘Buy America’ or ‘Buy American.’” This comes just days after the FAR Council’s implementation of President Trump’s Executive Order 13881, which required significant changes to the regulations implementing the Buy American Act, 41 U.S.C. §§ 8301-8305 (“BAA”), as discussed in our prior blog article. While only time will tell if the FAR Council will revisit the newly released regulations – they probably will, but not until later this year – we have provided below several key points from the EO so companies can start planning now for future developments.
Redefining Domestic End Products and Construction Material
For nearly 70 years, the domestic content requirement has been the standard for determining whether an end product was “substantially all” manufactured in the United States under the BAA, focusing on the cost of the manufactured components. But the Order calls upon the FAR Council to replace this domestic content requirement in FAR Part 25 with a new “value added” test – measuring domestic content “by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity.” This means that, in addition to the cost of materials and components, U.S. manufacturers may begin to add the value of U.S.-based labor, an issue that many suppliers have long advocated. The EO provides no further detail on what this “value added” test will look like, and whether certain types of costs may or may not be excluded, but we expect that the FAR Council will work out the specifics over the next 180 days (as required by the Order).
Increasing the Domestic Content Requirement and Price Preferences (Again?)
The Executive Order also calls for an increase in the domestic content requirements under the BAA (recently raised to 55% for most non-COTS manufactured goods and 95% for most products made wholly or predominantly from iron or steel) and an increase to the price differential for when the U.S. government may purchase a foreign-made product because the U.S. option is just too expensive (recently raised to between 20-50%). The final regulations issued just last week already implemented both of these changes, and so it is unclear whether the FAR Council will again attempt to “increase the numerical threshold for domestic content requirements.” Unlike the Trump Order, the new Biden Order does not provide any specific numbers on the extent to which the content requirements should be increased. Nor does President Biden provide any information regarding the impact, if any, this direction will have on the already high 95% requirement for products made wholly or predominantly of iron or steel (or a combination of both). At the very least, we expect the FAR Council to review the new rules issued last week – but do not be surprised if the FAR Council leaves the numbers where they are (at least for the time being).
Commercial Item Information Technology Waivers
Currently, FAR 25.103(e) recognizes an exception to the BAA with respect to “information technology” (“IT”) that is a “commercial item” (both of which are defined terms under FAR 2.101). This exception allows the government to purchase a broad array of commercial IT products (paying market-based commercial prices) without regard to country of origin when the BAA governs a particular procurement. The EO directs the FAR Council to review this exception and “existing constraints on the extension of the requirements in Made America Laws to information technology that is a commercial item.” The FAR Council is directed to develop recommendations for lifting such constraints. Though the EO is unclear as to the timing of the FAR Council’s findings, contractors should begin taking stock of the commercial IT products they sell that are subject to the BAA, preparing for the possibility that this exception will be removed. Based on the language of the EO, it seems likely that the exception ultimately will be going away; but we’ll let the FAR Council have the final word on that point.
New “Made in America Office” within the Office of Management and Budget
One of the few provisions with immediate impact, the EO calls for the creation of a “Made in America Office” within the Office of Management and Budget (“OMB”) and with a “Director of Made in America” appointed by the Director of OMB. The role of this office will increase scrutiny over all Buy American waiver requests. Once the Director is appointed, he or she will maintain responsibility for vetting every waiver request, creating a central clearing house and even creating a public website to allow for greater public scrutiny on waiver requests. Agencies will be required to provide the Director with a description of the proposed waiver, as well as a “detailed justification for the use of good, products, or materials that have not been mined, produced, or manufactured in the United States.” The Director will have 15 days for each review, with agencies given opportunities to appeal any unfavorable decisions. The purpose of this new role appears to be to support the Administration’s increased oversight of domestic preference laws while also allowing for greater consistencies in the (increasingly) rare instances where a waiver will be granted. Still, the practical impact likely will be a continued reduction in the amount of waivers sought for fear of slowing procurement processes and/or public shaming through the new proposed website.
This new Office also will conduct a review of items that currently are listed as “unavailable” from domestic sources. This list currently is provided at FAR 25.104, but it has not been updated in more than 10 years.
Agency Reporting Requirements
President Biden’s EO also requires agencies to report, within 180 days, on (1) the agency’s implementation of, and compliance with “Made in America Laws,” (2) use of waivers, and (3) “recommendations for how to further effectuate the policy set forth in section 1 of this order.” Agencies will be required to continue such reporting on a bi-annual basis moving forward. These kinds of data collection/reporting requirements are nothing new, but the regularity of the reports is. The recurring nature of these reports will ensure that Buy American issues remain on the front burner.
Revocation of Some of President Trump’s Prior Orders
The new EO also revokes some of President Trump’s prior Buy American Orders, although it leaves some orders in place. Specifically, EO 13788, Buy American and Hire American (discussed here), and EO 13975, Encouraging Buy American Policies for the United States Postal Service, are revoked. But EO 13881, Maximizing Use of American-Made Goods, Products, and Materials (discussed here), and EO 13858, Strengthening Buy-American Preferences for Infrastructure Projects (discussed here) are left largely intact, superseded only to the extent that the prior Orders are inconsistent with this new Order.
Given the final regulations implementing EO 13881 went into effect January 21, 2021 (four days before President Biden’s order), contractors should continue to adhere to the new regulations unless and until the FAR Council issues amended guidance. However, this Order suggests further changes to BAA regulations are coming in 2021, and contractors should be ready.
For those policy wonks out there, this is the key policy takeaway – Biden and Trump were never very far apart on Buy American policy, and President Biden is likely to build on many of President Trump’s Buy American policies going forward. It is extremely unlikely that things will be getting “easier” for industry, and Buy American compliance obligations are likely to continue to climb. We’ll keep you posted.